Companies in the United States can be broadly categorized as small, middle, or Fortune 1000. While there is no standard formula, the distinction can be based on assets, net income, annual revenue, or number of employees. The middle market usually refers to a company with annual revenue of $100 million to $3 billion, but the absolute definition differs by various authorities. Harvard Business Review regards middle-market firms as those earning $10 million to $1 billion annually, while some analysts classify middle-market firms as those with 500 to 1500 employees. Middle-market firms account for 48 million US jobs and $10 trillion in revenue.
Most, if not all, middle-market companies are in service, manufacturing, wholesale, technology, and distribution industries. In these sectors, companies have a long history and a traceable growth path in size, number of branches, number of employees, and products or services. Few engage in retail sales.
Another primary characteristic is business ownership and organizational structure. Ownership depends on the size and status. Companies can be owned by a single owner or multiple owners backed by a team of advisors or shareholders, if publicly traded. The owners typically leave daily operations to the management but may perform work such as seeking high-level partners and investors, running company-sponsored foundations, and handling community service.
Middle-market companies have multiple layers of management due to the complexity of the company size or number of employees. Each management level has a distinct job and reporting lines. Management sees that the company achieves key objectives, including sales, customer satisfaction, and overall financial strength.
One of the dominant features of middle-market companies is the presence of or the zeal for a competitive advantage. The company usually leverages financial strength to possess proprietary products, technology, or processes. If the company holds patents, it may earn revenue through partnerships or licensing.
Compared to small businesses and large corporations at the Fortune 1000 level, middle-market firms are the most attractive to investors. Small businesses, especially startups, tend to be too risky for investors, while large companies have the least possibility of growth. The middle market still enjoys growth potential and has already surpassed the risk of collapse due to an established brand and market share.
Some indices are dedicated to middle markets only, such as the S&P Mid-Cap 400, which covers over 400 middle-market firms with a market capitalization of $200 million to $5 billion in the United States. There are several ways for middle-market firms to acquire funds for expansion, improving business processes, or new hires. A company can fund itself through profits after deducting operating costs. If funds are insufficient or unavailable, the company can turn to external lenders and investors.
Investors in middle-market companies generally range from high-wealth individuals to private equity groups. In some instances, a company may be acquired by a competitor or expanded through a merger. However, access to information about middle-market companies, especially ownership and financial data, can take time and effort. Most documentation is internal, and most middle-market companies listed on the indices are unfamiliar to the general public.
